HMRC’s Spotlight 32 updated following Upper Tribunal ruling

13 February 2018

HMRC have updated spotlight 32 – Managed Service Company legislation: unpaid PAYE and Class 1 NI avoidance schemes to reflect the ruling of the Upper Tribunal after an appeal from Costelloe Business Services Limited. The Upper Tribunal upheld the ruling of the First-tier Tribunal that the appellant’s companies were operating as Managed Service Companies (‘MSC’) as the MSC legislation (Chapter 9 of ITEPA 2003) applied to arrangements established and run by Costelloe Business Services Limited.

In addition to the original decision the Upper Tribunal (‘UT’) considered 2 additional areas;

The definition of a MSC provider is ‘a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals’. HMRC’s view was confirmed by the UT that if the answer to the following question is yes, the person is a MSC provider:

Does the person promote or facilitate the use of a company?

Does the company provide the services of an individual?

Secondly, the Upper Tribunal decided that ‘influences’ and ‘control’ has a wider meaning than expressed in the First-tier Tribunal decision. Costelloe Business Services Limited influenced how payments were made to workers by causing them to receive dividends and wages instead of just wages.

When the workers are told by the MSC provider the amount to be paid as dividends and the MSC provider carries out the administrative process, it amounts to control.